If you’re wondering what “set & forget” means, it’s a common catch phrase used widely by many commercial MetaTrader EA vendors.

It implies that the prospective user of the EA advertised as “set & forget” need do nothing more than purchase, install and run said EA (usually accompanied by a notice to follow all rules, instructions etc as supplied by the vendor).

In this post, we’ll discuss some popular misconceptions centered around this “set & forget” EA-marketing phenomenon.

We’ll present a set of realities that attempt to dispel the notion, realities that are usually not presented by most EA vendors to retail forex traders.

By the end of this blog post, you’ll have developed a keen, rather chiseled understanding of what to look for in an MT4 Expert Advisor, how EA vendors are much better off listing DARWINs instead, and how “set & forget” is more “marketing sizzle” than it is ever a reality.

.. so let’s begin 🙂

“Set & Forget”: Myth vs. Reality

Almost all commercial MetaTrader EA websites will promote:

The EA’s performance over historical and live data,

Target asset mix, risk management and execution,

Testimonials of other EA users validating the information above.

For the remainder of this post today, we’ll focus on the first point.

Backtests & Live Forward Tests

Profitable backtests showing a MetaTrader EA’s performance over many years, do add some credibility to a vendor’s effort.

Backtesting: Historical vs Live Performance

However.. as easy to use a platform as MetaTrader is,

any backtest conducted in the MetaTrader 4 Strategy Tester cannot have taken the following into consideration:

Variable slippage & spread

Valid, temporally accurate swap charges (especially for trading strategies employing high leverage and/or those trading a large number of currency pairs over several days)

Variable market impact due to out-of-sample political and/or economic developments

Event-driven changes in a broker’s margin requirements

Execution latency, e.g. due to VPS co-location or infrastructural constraints.

COMPLETELY different market conditions to those experienced during the backtest (e.g. what would it have looked like had conditions been entirely different? what is the probability of a particular backtest being “lucky”?)

Let’s discuss each of these in turn.

Variable Slippage & Spread

At the present time, MetaTrader’s Strategy Tester enables EA developers to test a fixed spread applied across an entire backtest.

Using additional third-party tools, it is however possible to simulate randomized spread and slippage across an entire backtest.

At bare minimum, unless a vendor has made the effort to at least simulate the effects of these two variables on historical returns, the likelihood is low of the EA performing similar to the backtest had it actually been live during that time.

The need to sell an EA diminishes very fast if its DARWIN is worthy of attracting AuM and legally earning performance fees on investor profits.

Of particular interest in this case, would be scores attained for Capacity & Divergence. i.e. the effects of different levels of pip divergence on strategy returns, and trader vs estimated investor returns respectively.

Furthermore, if the EA vendor is promoting the expert advisor as “only suited to fixed spread environments”, you can rest assured that any live forward tests have been conducted with a non-DMA broker (see here for more on this and associated risks).

Valid, temporally accurate swap charges

For trading strategies holding trades longer than intraday timeframes (particularly those employing high leverage), accurately accommodating swap charges in MetaTrader’s Strategy Tester is impossible without external tools and access to a time series of broker swap history.

For more information on the exact treatment of swap charges in MetaTrader’s Strategy Tester, please visit this link.

For loss averse trading systems in particular (that hold trades for long periods of time, add to losing positions in an attempt to recover prior losses, etc), “setting and forgetting” such an EA could prove to be a futile exercise if for example, the EA’s target asset mix contains high swap pairs (e.g. EA’s that scalp the NZD/JPY and AUD/JPY around rollover times).

Variable market impact due to out-of-sample developments

Under the definition of “set & forget”, some EA vendors may imply that a MetaTrader expert advisor that survived say, the global financial crisis of 2008 in a backtest, could also survive crises in the future.

Emphasis may be observed in their marketing material on the EA’s robust performance “in all market conditions”, weathering the storms of past crises successfully.

Claims may also be bolstered by references to the length of the backtest as “evidence” to this effect.

When confronted with the above, retail forex traders must tread carefully.

Just as past performance is not indicative of future performance, weathering past storms (let alone in a backtest) is certainly not indicative of weathering completely different storms in future – be they the result of political and/or economic shifts in the market, to name a few.

Execution latency

In live trading however, order execution latency (the difference in time and/or price, between submitted and filled orders) can be frequent depending on factors such as:

Trade frequency,

Available liquidity,

Time of submission (e.g. before, during or after news?)

Size of submission (e.g. 0.1 lots vs 100.0 lots)

..to name a few.

Modelling this near-stochastic process adequately is both difficult and infeasible in MetaTrader backtests.

—

Technical issues & human error

Simulating the effects of software/hardware malfunction, bounced payments to VPS services, dropping coffee on your laptop (or server casing?), on the returns of a strategy is certainly not “impossible”.

……. well, hopefully you can see why a commercial EA vendor may need tremendous motivation (not to mention computational power!) to go to such trouble.. 🙂

Yet the risks of technical issues and human error drastically changing live trading returns, are very real, rendering “set & forget” a very risky proposition.

Unforeseen, SUDDEN market movements

Sudden, potentially catastrophic market movements such as the GBP Flash Crash of October, 2016, bring with them a tidal wave of abrupt changes, not only in price but also in execution and liquidity dynamics.

Historical data will permit commercial EA vendors to showcase their product’s performance using just price during such times, ignoring other important factors.

For example, if an EA survived the GBP Flash Crash in a backtest, using fixed spread whilst assuming perfect execution conditions, odds of a repeat performance are negligible (if not zero) in case the GBP Flash Crash were to happen again on the first day the EA is deployed live.

More reason to treat “Set & Forget” claims with more than just a pinch of salt.. 😉

—

COMPLETELY different market conditions

Lastly, there linger the following questions:

What if a backtest was just lucky? (walk forward optimized or not).

What if the market conditions observed in the backtest never surface again?

What would this backtest look like if ALL the bad trades happened at the beginning (or the end), or some random positional variation thereof?

“The backtest looks great, but..

What is the true probability of me seeing similar performance in future?

Given that this EA has this backtest, what is a realistic range of future returns I am likely to see?”

Next time you see an EA marketed with “Set & Forget”, ask yourself these questions.

Consider listing a DARWIN instead and tap into investor capital on the Darwin Exchange! (.. more than $1,000,000 in performance fees paid to date).

Let’s continue where we left off in our last post on tick data collection. If you missed it, it’s important that you familiarise yourself with its contents first. Here’s the link again: https://blog.darwinex.com/download-tick-data-metatrader/ Therein, we promised a follow-up post that would discuss an approach for retail traders to automate tick data collection with the R […]

In this third installment of our ZeroMQ series, we describe how to use ZeroMQ in non-MQL trading strategies to get the following information: Account Information (e.g. equity, margin, balance, etc) Trades at market (live or pending) Historical Trades If you haven’t already, please consider reading the following posts before proceeding further in this article: ZMQ-I: […]

This post on commercial expert advisors (also referred to in short, as EAs) is the first of an EA Series we’re embarking upon. Today we shed light on some of the main advantages and disadvantages of the same to traders. The intention here is not to tag commercial expert advisors as either good or bad, but […]

This post builds on the contents of the previous article in this series, namely ZeroMQ – How to Interface Python/R with MetaTrader 4. Therein, we proposed a solution to creating trading strategies in ZeroMQ supported programming languages outside the MetaTrader environment, with the latter simply acting as the intermediary to the market. Leveraging ZeroMQ’s convenient […]

Subscribe to our newsletter to stay up to date with Darwinex news, we promise we won’t spam you!

Email

The Darwinex® trademark and the www.darwinex.com domain are owned by
Tradeslide Trading Tech Limited, a company duly authorised and regulated by the Financial Conduct Authority
(FCA) in the United Kingdom with FRN 586466. Our Company number is 08061368 and our registered office is Acre
House, 11-15 William Road, London NW1 3ER, UK.

This website stores cookies on your computer. These cookies are used to collect information about how you interact with our website and allow us to remember you. We use this information in order to improve and customize your browsing experience and for analytics and metrics about our visitors both on this website and other media. To find out more about the cookies we use, see our
Privacy Policy.

If you decline, your information won't be tracked when you visit this website. A single cookie will be used in your browser to remember your preference not to be tracked

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.
77 % of retail investor accounts lose money when trading CFDs with this provider. You should consider whether
you understand how CFDs work and whether you can afford to take the high risk of losing your money.